New Heritage Doll Company: Capital Budgeting

Exhibit 1 Selected Operating Projections for Match My Doll Clothing Line Expansion

2010 2011 2012

Revenue 4,500 6,860
Revenue Growth 52.4%
Production Costs
Fixed Production Expense (excl depreciation) 575 575
Variable Production Costs 2,035 3,404
Depreciation 152 152
Total Production Costs 0 2,762 4,131
Selling, General & Administrative 1,250 1,155 1,735
Total Operating Expenses 1,250 3,917 5,866

Operating Profit (1,250) 583 994

Working Capital Assumptions:

Minimum Cash Balance as % of Sales 3.0% 3.0%
Days Sales Outstanding 59.2x 59.2x
Inventory Turnover (prod. cost/ending inv.) 7.7x 8.3x
Days Payable Outstanding (based on tot. op. exp.) 30.8x 30.9x

Capital Expenditures 1,470 952 152

CASH BALANCE 135 206

AR 740 1,128
ENDING INVENTORY 359.66146 500.1211
A/P 334.70298 503.4983

NET WORKING CAPITAL 900 1,330

Cash flow (2,720) 530 2,172

NPV 14,585.2722764964
IRR 64%
PAYBACK PERIOD 2 YEARS 1 MONTH
lothing Line Expansion

2013 2014 2015 2016 2017 2018 2019 2020

8,409 9,082 9,808 10,593 11,440 12,355 13,344 14,411
22.6% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%

587 598 610 622 635 648 660 674

4,291 4,669 5,078 5,521 6,000 6,519 7,079 7,685
152 152 164 178 192 207 224 242
5,029 5,419 5,853 6,321 6,827 7,373 7,963 8,600
2,102 2,270 2,452 2,648 2,860 3,089 3,336 3,603
7,132 7,690 8,305 8,969 9,687 10,462 11,299 12,203

1,277 1,392 1,503 1,623 1,753 1,893 2,045 2,209

3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x
12.7x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x
31.0x 31.0x 31.0x 31.0x 31.0x 31.0x 31.0x 31.0x

152 334 361 389 421 454 491 530

252 272 294 318 343 371 400 432

1,382 1,493 1,612 1,741 1,880 2,031 2,193 2,369
396.0079 426.7244 460.8583 497.7244 537.5433 580.5591 626.9921 677.1575
614.2995 662.3822 715.3749 772.5969 834.4102 901.1764 973.2575 1051.127

1,416 1,529 1,652 1,784 1,927 2,081 2,247 2,427

2,541 2,587 2,794 3,018 3,259 3,520 3,802 4,106

76%
New Heritage Doll Company: Capital Budgeting
Exhibit 2 Selected Operating Projections for Design Your Own Doll

Revenue
Revenue Growth
Production Costs
Fixed Production Expense (excl depreciation)
Variable Production Costs
Depreciation
Total Production Costs
Selling, General & Administrative
Total Operating Expenses

Operating Profit

Working Capital Assumptions:

Minimum Cash Balance as % of Sales
Days Sales Outstanding
Inventory Turnover (prod. cost/ending inv.)
Days Payable Outstanding (based on tot. op. exp.)

Capital Expenditures OUTFLOW

CASH BALANCE
AR
ENDING INVENTORY
A/P

NET WORKING CAPITAL

Cash flow

NPV 20969.4365412454
IRR 43.06%
PAYBACK PERIOD 3 YEARS 3 MONTHS
 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
0 6,000 14,360 20,222 21,435 22,721 24,084 25,529 27,061
139.3% 40.8% 6.0% 6.0% 6.0% 6.0% 6.0%

0 1,650 1,683 1,717 1,751 1,786 1,822 1,858 1,895

0 2,250 7,651 11,427 12,182 12,983 13,833 14,736 15,694
0 310 310 310 436 462 490 520 551
0 4,210 9,644 13,454 14,369 15,231 16,145 17,113 18,140
1,201 0 1,240 2,922 4,044 4,287 4,544 4,817 5,106 5,412
1,201 0 5,450 12,566 17,498 18,656 19,775 20,962 22,219 23,553

(1,201) 0 550 1,794 2,724 2,779 2,946 3,123 3,310 3,509

3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x
12.2x 12.3x 12.6x 12.7x 12.7x 12.7x 12.7x 12.7x
33.7x 33.8x 33.9x 33.9x 33.9x 33.9x 33.9x 33.9x

4,610 0 310 310 2,192 826 875 928 983 1,043

0 180 431 607 643 682 723 766 812

0 986.167 2360.23 3323.64 3523.05 3734.43 3958.51 4196.02 4447.79
0 346 786 1,065 1,130 1,197 1,269 1,345 1,426
0 509.698 1179.78 1649.66 1758.81 1864.35 1976.21 2094.78 2220.48

0 1002.09 2397.2 3345.84 3536.9 3749.11 3974.06 4212.52 4465.26

-5811 0 1242.69 3881.8 3878.04 5490.4 5819.61 6168.86 6539.22 6931.32

5124.5 9002.54 323.17 686.504 2.12428

 2020
28,685
6.0%

1,933
16,712
584
19,229
5,737
24,966

3,719

3.0%
59.2x
12.7x
33.9x

1,105

861
4714.65
1,512
2353.71

4733.18

7347.18
1

5
THE MMDC IS SEEN TO BE MORE COMPELLING AS THE PROJECT REQUIRES LESS

DESIGN YOUR OWN DOLL SHOULD BE SELECTED AS IT PROVIDES HIGHER NPV.

ITS ASSUMED THAT DYOD IS RISKY BUT SINCE IT PROVIDE GOOD RETURNS WE A

MMDC has higher IRR and lower payback back period. But NPV is a better measure based on

The risk of the DYOD must be found to more effectively as currently its based on assumption.

The best project would be DYOD as it provides better NPV.